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Graham Watson
onto Microeconomics: IB Economics April 29, 2024 2:02 AM
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Editorial: Farmers, even more than consumers, need a stable and predictable global food system
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Pub owner’s sale to Barcelona-based brewer Damm is latest takeover of a British beer by an overseas buyer
Graham Watson's insight:
Spanish brewer Damm, owner of the Estrella brand has bought the Old Speckled Hen brand from UK pub owner, Greene King. The latter have decided to move away from the off trade to selling its own beers in its own pubs.
As a result, the long-term plan is for Damm to brew the beer at its new Bedford brewer and move away from the current Bury St.Edmunds brewery. It's part of wider trend of foreign brewers buying up UK beer brands.
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The average price of unleaded has risen to 158.52p a litre, according to the RAC, who warn that it could rise further in the coming weeks.
Graham Watson's insight:
The usual: petrol prices, Iran...D&S
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Despite the ban on disposables, waste professionals say the mountain of discarded devices is a £1bn-a-year issue
Graham Watson's insight:
This article looks at the negative externalities arising from disposable vapes, with their disposal being far from straightforward because they need separating into different components and they're also responsible for a significant number of fires at recycling centres.
The extent of the problem is such that the government are looking at a variety of solution to this, including a deposit return scheme which would see vape users return them to where they sold them and collect a sum of money for their return.
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Climate and transport organisations warn ministers not to ‘sleepwalk into crisis’ amid Iran war oil and gas shortages
Graham Watson's insight:
A number of environmental and transport groups have called for intervention to tackle the prospect of a fuel shortage, with non-market interventions such as reducing speed limits and banning private jets being two of the solutions volunteered.
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Philip Morris claimed it wanted to end cigarette sales, but experts and campaigners say new promotions seem designed to attract younger consumers
Graham Watson's insight:
Anti-smoking campaigners are upset by the seeming hypocrisy of Philip Morris, the manufacturer of Marlboro cigarettes who appear to have pivoted from the CEO, Jacek Olczak, saying that “cigarettes belong in museums” to launching a global advertising campaign entitled "I AM Marlboro".
To be frank, it's not that surprising: Philip Morris is going to be a profit maximiser and it will also own a lot of cigarette-specific assets that are only going to decline in value if they stop selling cigarettes. However, whilst it's probably good for them, what's the net effect on the wider global economy?
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Britain’s largest carmaker says sales also hit by competition in China as it publishes financial results
Graham Watson's insight:
Some quite remarkable - in a bad way - numbers posted by Jaguar Land Rover, with profits down by 99% to £14m from £2.5bn.
There are two obvious causes of this: the cyber-attack that saw the company shut down for a few week in September and October, and President Trump's tariffs on UK cars, originally set at 25% but subsequently reduced to 10%, which hit demand in US markets. The increasing level of competition in the Chinese market has also played a role in reducing profit too.
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Investment bank JP Morgan expects oil to remain in the "low $100s" even if the Strait of Hormuz were to reopen next month.
Graham Watson's insight:
The usual: D&S, oil prices and geopolitics, with JP Morgan forecasting that oil price is going to remain above $100 for the rest of the year. Oh dear! Economically, this is bad news. Oh dear squared, poor President Trump in the mid-term elections.
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Acquisition would result in combined company serving about 9.6 million households if given regulatory approval
Graham Watson's insight:
German energy giant E.ON has announced its intention to buy UK rival, Ovo, creating the largest electricity and gas supplier in the country with 9.6m customers. However, the deal still requires regulatory approval.
As is always the case, E.ON argue that consolidation will be a good thing - with economies of scale being generated such that energy bills are likely to fall. Ovo has also sold on its home services business that provides boiler insurance and servicing.
However, I suspect the real reason for the merger is more to do with the financial uncertainty surrounding Ovo, which has struggled since taking over SSE in 2019, and it failed financial stress test last September. You would imagine that this has allowed E.ON to drive a pretty hard bargain as far as the cost of the merger is concerned.
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Officials reportedly drafting legislation likely to safeguard Britain’s last blast furnaces and save thousands of jobs
Graham Watson's insight:
Given the history of British Steel, I can't help feeling that they've got this headline wrong: it's renationalisation, rather than nationalisation, surely.
Either way, British Steel is being taken into public ownership and this offers an opportunity to think about arguments for public ownership and arguments for privatisation, and perhaps consideration of whether the 1980s wave of privatisations has been a success; it varies from sector to sector in my view. You might also think about what else has been renationalised, and the arguments offered for renationalisation
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East Midlands electric car club helps residents and cuts emissions – but the need for a volunteer-led scheme reflects a much wider problem
Graham Watson's insight:
This article starts small, looking at a community car club in Leicestershire, which charges a monthly fee for access to two electric vehicles that can be hired by the day or hour, and even comes with volunteer drivers for those people no longer able to drive, but broadens out to consider the implications of current transport policy for carbon emissions.
Despite the current target for all new car sales to be electric by 2035, this seems to be unlikely to be achieved, and decades of under-investment in public transport suggest that we're not going to reduce carbon emissions in the sector in line with targets.
The solutions revolve around reducing car use, and encouraging the faster take-up of electric vehicles, both for individual households and via shared car schemes to plug the gaps where there are no viable public transport alternatives.
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GWR, which runs trains between London and South Wales, will come under government control.
Graham Watson's insight:
And still they come, with the news that another rail operator - or train operating company (TOC) - is being taken back into state control, with Great Western Railways becoming part of the broader Great British Railways in December this year.
It's interesting to think about privatization more broadly in this context. Has it worked? In which sectors? And why might that have been the case?
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The unmanned aircraft can drop off 100 parcels a day within a 12km radius of Amazon's hub.
Graham Watson's insight:
Innovation in Darlington of all places. Amazon are trialling the use of drones in the North East. Is this the future?
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Airlines have removed nearly two million seats from flights over the month, data from Cirium shows.
Graham Watson's insight:
Evidence of the global aviation market reacting to the possibility of shortages of aviation fuel with airlines removing nearly 2 million seats from sale in May. However large that may sound, it only represents around 1% of the total capacity in the market and hasn't as yet seen many UK-based flights cut. The majority seats have been shed at Istanbul and Munich and reflect the fact that these airports are increasingly known as 'hubs' for other routes. |
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Energy bills will rise by £209 in July to £1,850 a year, forecast says | Energy bills | The Guardian
Cornwall Insight predicts rise in price cap of nearly 13% in Great Britain as Iran war pushes up gas costs
Graham Watson's insight:
It's like deja-vu all over again, with Cornwall Insights forecasting that energy bills are going to rise by over £200 in July to around £1,850 per year for the average household, a 13% increase. This will come about because of OFGEM will review its quarterly price cap then, taking into account the effect of the Iran war on wholesale energy prices. Given the damage to the region's energy infrastructure, it's highly unlikely that prices will quickly fall back to April's level too.
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Closure of local shops and poor public transport leave households struggling to access healthy and affordable food
Graham Watson's insight:
A University of Sheffield study suggests that low income households in rural areas are worse off than their urban equivalents in terms of their access to healthy food options such a fresh fruit and vegetables.
As the article notes: "While just 7% of lower-income households in deprived urban neighbourhoods lived more than 20 minutes’ walk from the nearest shop selling fresh fruit and vegetables, this rose to 52.5% for households with identical incomes in rural areas."
This food insecurity is likely to mean higher obesity rates, and a higher level of negative externalities associated with this.
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Ken Murphy’s pay could rise even higher following scrapping of food waste target and weakness of rivals
Graham Watson's insight:
Readers of this board will know that executive pay is one of my favourite topics - not least because I don't believe that the way we're told to teach it corresponds to reality!
Here's another example: the total pay of Tesco's CEO is due to rise by £1m, to £10.8m, because of a rise in the supermarket's market share. Now, I'm happy to support this - a rise in market share can come from some of the actions of the CEO, but can it solely be attributed to him? And he's failed to hit targets on food waste and diversity and inclusion.
However, there's one sentence in here that intrigues: the rise in market share has been "helped by the weakness of rivals Asda and Morrisons". Eh? So, you're saying that his total remuneration is in part higher because of the poor performance of others? Shall I start giving more generous marks to my best pupils when my worst pupils under-perform? labour ma
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The regulator say the energy supplier breached licence conditions aimed at protecting customers in vulnerable situations.
Graham Watson's insight:
The regulator, OFGEM, has intervened in energy markets to protect vulnerable consumers who were forced into having pre-payment meters fitted by a sub-contractor on the company's behalf. It is part of wider trend within the industry - as the article notes: "40,000 customers had a prepayment meter installed without permission between 2022 and 2023."
In this instance, British Gas has been compelled to pay £20m into a redress fund to compensate consumers.
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Privilege being mistaken for competence as study reveals no evidence to suggest companies run by state-educated peers underperform
Graham Watson's insight:
One of the more interesting labour market related articles that I've come across in a while, this Guardian piece looks at the relationship between the educational background of CEOs and finds that not only do privately educated CEOs make up a disproportionate number of British executives, but that their "performance" results in lower stock market volatility despite the fact that its identical to their state school peers.
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London’s Alphonso mango supply is down this year due to fewer imports and higher prices for shoppers.
Graham Watson's insight:
A shortage of Alphonso mangoes is affecting market traders in London, particularly Tooting. You should, as post-16 economists be aware of the effects of a shortage on the price of mangoes, but unsurprised to hear that the Iran war is partly to blame.
However, for once, a D&S story about something other than oil.
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Hard decisions over a possible sale and future subsidies loom now full nationalisation is on the cards
Graham Watson's insight:
Nils Pratley with analysis of what people are still insisting on calling the nationalisation of British Steel; I'm still adamant it's the renationalisation but assume that because it now only refers to one part of the UK steel industry, this is why the term 'nationalisation' has been chosen.
Linguistic quibbles aside, the article highlights why the move is fraught with difficulty, not least because the opportunity cost of the intervention is going to be so high. Ultimately, I suspect the government is hoping to transition the plant to both greener electric arc furnaces and, at some point, back into private ownership. If it's unable to do this, then it will be on the hook for a pretty large sum going forward.
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The steelworks has been under government control for almost a year, but leglistation to nationalise it will be put forward this week.
Graham Watson's insight:
As trailed earlier, the Prime Minister has announced the renationalisation of British Steel, safeguarding 2,700 jobs.
However, is it good economics? Certainly the figures from the National Audit Office are eye-opening, "the current government supervision regime had cost some £377m", and could cost up to £1.5bn by 2028. Equally, even though the unions are pleased, is it appropriate " that all government-funded projects use UK steel."
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The group’s latest triumph won over the Department for Business and Trade, now it is eyeing private care providers and supermarkets
Graham Watson's insight:
Heather Stewart writes about the 25th anniversary of the National Living Wage campaign, differentiating between its voluntary nature and the government-mandated National Minimum Wage (NMW) which impels firms to pay a statutory minimum wage to their employees, albeit the case that George Osborne renamed the later the National Living Wage in 2015, in announcing that the aim of the policy was to ensure that this reached two-thirds of the UK median wage.
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Emissions understated by factor of five in Essex plans for tech giant, while Greystoke’s Lincolnshire plans show similar error
Graham Watson's insight:
Irrespective of the veracity of the figures, it seems remarkable that data centres should be emitting as much carbon as a mid-sized city, such as Bristol. However, according to non-profit, Foxglove, that seems to be the case for three proposed data centres, in Essex and Lincolnshire respectively.
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Through surging profits or soaring share prices, the war has been a boon for some firms.
Graham Watson's insight:
A nice little primer on which sectors of industry are benefitting from the Iran war - you should be able to guess all of them. However, it's interesting in all sorts of ways: does it justify a windfall tax? And what about executive pay? some of these CEOs are going to be well remunerated on the basis of factors entirely beyond their control.
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Firms raising prices at fastest rate in three years, driven by soaring energy and wage bills but also extra materials costs
Graham Watson's insight:
And the companies themselves are using fuel surcharges to meet rising fuel costs, given that they are profit maximizers. I'm slightly surprised by this; it strikes me that the airlines seem to be able to pass on a good proportion of the risk in the sector onto their customers. Surely that's an essential part of running a business?
I'm not aware of them ever discounting seats if fuel prices have fallen; it will be interesting to see what happens to their profits this year. |
The Guardian looks at the market for chocolate, noting that despite cocoa prices rising to four times the level they were last year, next to none of this goes to producers, who remain locked into a system that keeps them in poverty.
Big producers argue that they struggle to cope with such price rises, but cocoa accounts for around 10% of the cost of a bar of chocolate, so there's a call for the introduction of a minimum price for the farmers.